I know I bang on about it a bit, but I wonder if people truly understand what a unique period in history this is.
To be alive at the same time as Justin Beiber…
No that’s not what I’m talking about. And I’m not talking about the internet revolution or an approaching environmental tipping point either – though both of those things make it a fascinating time to be alive.
I’m talking about being here to witness the greatest global financial experiment…
…EVER!
And if you play your cards right, make a tonne of cash out of it.
Because that experiment involves the digital equivalent of dropping money from aeroplanes.
Great big bags of it.
Money has never been this easy. Never.
We’ve never seen anything like it. And the whole world’s gone wild with EZ fever.
At the beginning of the month, the RBA cut rates, taking them to the lowest level in 50 years. And if you ask me (and most economists… and taxi drivers and hair-dressers) they could go even lower yet.
But money in Australia, even at 50 year lows, is relatively expensive compared to what’s going on in the rest of the world.
All of the G7 now have interest rates set at less than one percent. They’re zero in the US and Japan. Super Mario Draghi’s even talking about taking rates into negative territory in Europe.
Yep. EZ fever is spreading. In the last month or so, there have been interest rate cuts in the eurozone, India, Australia, South Korea, Kenya, Poland, Mongolia, Belarus, Austria, Belgium, Hungary, and Turkey, just to name a few.
Even the thriving financial centre of Botswana got in on the action. Not to be outdone, the governor of the central bank of Moldova told the newspaper boy to get back on his donkey and tell everyone that they were cutting rates too.
It’s unprecedented. The world as never seen money as easy as this.
And what does it mean?
Well, in the long run, it’s not quite clear. It’s a pretty radical experiment. The equivalent of stitching various body parts together and sparking the whole thing off with lightning. You could end up with something that’s very handy around the house, or you could end up with a monster that likes to destroy entire villages.
But that’s in the long run.
In the short run, it’s going to jack up asset prices. Why? Because that’s exactly what it’s supposed to do.
Sure, the pointy-heads might tell you it’s about lowering the cost of money, and making it cheaper for consumers to consume and businesses to invest. And that might happen, but it seems that’s a little way down the track.
But the first step is to flood the world with cheap money, knowing full well that a vast share of it will get pumped straight back into shares and property. Hopefully, once soaring asset prices make people feel rich, they’ll start spending again.
Glenn ‘Good Times’ Stevens and his league don’t really care how we get there. Just as long as we get some more fuel in the tank, and we get the economy going again.
It’d be great if consumers just started loading up on debt again, and started ramping up consumption that way.
But since they don’t want to play ball, we’ll need to make them so rich they feel obligated to buy a Mercedes.
Likewise, it’d be great if businesses started leveraging themselves up to the eyeballs again. But since they’re not, let’s jack up the paper value of their companies, so they’re just begging for something to invest in.
The ends justify the means.
If it sounds like a dangerous game then that’s because it is. The Central banks are gambling that they can get the economy going again, before all this money flooding into asset markets unleashes bubbles the size of wrecking balls. If they can’t pull it off, then look out.
Pity the poor villagers.
But so far, and it’s still early days yet, it seems to be working. The stock market rally in the US is keying entirely off Big Ben Bernanke’s quantitative easing regime.
So much so that a few weeks ago, rumours that the Fed might be about to start taking it’s foot off the pedal, and unwinding some of it’s 85-billion worth of QE, sent a mini panic through the stock market.
Last week thought the Fed came out and said, ‘No, just kidding. Here’s some more money.’
And the jubilant villagers sent stocks soaring.
It’s the same story in Japan. Since Shinzo ‘Abenomics’ Abe announced that Japan would be copycatting the Fed, the stock market’s jumped 60 percent!
The Nikkei 225 is now a full 75 percent higher than it was in the middle of last year.
Which, by the way is great news for Australia. We’re so focussed on China these days, but Japan is still our number 2 trading partner. News that they could finally be breaking out of the swamp is a big plus for us.
A lot of this jump in Japan is on the anticipation of a flood of money, not so much on the money itself, but the EZ money doctrine is in full effect.
- Make money EZ.
- Make people rich
- Hope your rich people start spending
It’s radical! It’s kooky! It’s crazy! It’s never-been-seen-before prices!
And it just might work.
What you’ve got to ask yourself is: are you going to let them make you rich?
Are you?
Hon Peter Lewis says
Someone somewhere has to pay sooner or later, but don’t expect me to be the sucker! The only ethical [& moral] way to make it happen is to get those who are unemployed & those who are under-employed into the workforce full time so that their income and resulting increased expenditure on consumption will collectively fuel the rebound in demand to levels NEVER SEEN BEFORE & their collective savings finance the loan funds needed by those who will be striving to make the capital outlays required as investments in infrastructure & and production capacity to supply that spike in demand sudden spike.in demand!!….. ALL IN ALL rebuilding confidence in the Western Capitalist Democracies and BUILDING CONFIDENCE & DEMAND IN THE THIRD WORLD FOR THE FIRST TIME EVER !
Siroj Sami says
Hi Jon,
What do you think about the interest rate, how low will it go???
Kind Regards
Rocky says
Big problem is the entire thing is funded by debt, and for the most part is being spent on unproductive ‘assets’ that don’t give a return. Our kids are going to have to pay that debt back along with the interest, and they are not going to have anything to show for it. Just like the GFC, there’s going to be more massive defaults and writedowns when it unwinds, and somebody (ultimately the taxpayers) will have to pick up the tab again while a few people walk away with unearned billions. Business as usual. Don’t get me wrong, I’m an entrepreneur and I love the capitalist system. It’s just the way it gets bastardised and manipulated by a small group to the detriment of everybody else totally blows.
Schuey says
No one ever mentions the BIGGEST bubble in History is about to blow! And I don’t mean Mt Vesuvius or Mt St. Helens, its called the US National Debt! Its only standing at a massive $US17 Trillion, heading towards US$20 Trillion before the end of Obama’s term in the WH. The US now has debt at 108% of their GDP. Remember – NO ONE can bailout the US, not even China, and the media reports they are extremely worried, SO worried, they are working to have the US Dollar replaced as the World’s Reserve currency, FACT! This alone will have unpredictable ramifications – including upon Australia! Debt, is fine, but it must be repaid – by the next generation!
Craig D says
I would confidently say interest rates will drop a further .75 at best within the next 6 months. Yes, money is easily accessible, but being smart and assessing your investment will guarantee your return. The old favorite , property, is the only road to travel. You can see it, touch it and feel it. The current trend in property prices is moving slowly upward across the board. Don’t over extend and focus on areas 10klm surrounding the CBD.
Indrek says
Totally agree with Rocky and Schuey. imagine running your house hold like the way they run the country. Ha! This is fixable but we have to do it now. Unfortunately we have no leaders (where’s Kennet when we need him) that have got balls. The gov is attacking our super and I believe that the abolition of the age pension by 2018 is on the parliamentary table to be discussed. Our kids who are going to have to repay this debt are going to have to look after us also (is that likely, again a ha!) We Aussies are partly to blame for this. We just let it ride and “she’ll be right” No one up until now has taken any interest in what these Canberra bastards are doing to us. I doubt if any of my 20 something year old kids would know who the opposition leader is, and I’ll just vote for the Libs or Labs because my old man did. Are you kidding kids. Us oldies will just scrape through this mess at a reasonable lifestyle. You guys are going to have to pick up the tab and lament in not being gifted the inheritance. I think it’s just such a small minority of us who are worried about things that are trying to change things. If we had one politician who did just one thing right, just one thing, there might be a glimmer of hope.
MegaStevo says
Lower interest rates and EZ money exist, but for those who are currently leveraged at 70% LVR are stuck when trying to refinance to a lower rate. Bank’s valuations are lower than their current LVR which means existing borrowers are required to top up the shortfall on the lower valuation given by the banks in the lower interest rate environment. Where’s the humanity! Where’s the MONEY!
Peter lovett says
Politicians, God Bless them,have only one item on the agenda and that is to be re- elected so better not hold your breath waiting for them to fix anything (except to jack up their Super whilst they work out how to get their hands on yours).Until the speculative gambling risk taking section of the Banks is divorced from the commercial functions of the bank and Tax payers no longer “guarantee “the speculative side of the entity things will only get worse.The speculative side (Ponzi scheme)is totally bankrupt which means at present the Bank is unable to provide cash to the Commercial sector hence the farms in Goulburn valley and WA are being foreclosed on and are unable to borrow money in order to plant next sesons crops..Wise up Folks Aussie banks are less sound than the Cypriot Banks and the same regulations have been prepared for this country (just in case).The Glass Steagle act of the USA ,which is now in the US Senate and Congress is looking more band more likely to be implemented and that will send the non Commercial activities of the Banks to the wall and it will not be soon enougth.The GREED has to go and the General interest and wellbeing of the Citizens has t triumph.God Bless you all.Peter
PS Vote a Big Fat NO to a third tier of Government.The local councils having no legal substance or recognition in the 1901 Constitution Act is working just fine for the last 212 years.They have no power to levy Fines and penalties even though they act as if they do and most every body never questions anything.The price of Freedom is Eternal vigilance!!!
Peter lovett says
Sorry .Dreadful Matematics .I meant 112 years.Peter
JJ says
Peter is right. VOTE a big fat NO to the referendum on September 14.
We will NOT financially recognise local government in the zfederal Constitution. Local councils get enough funds through us Rate Payers; they need to learn to manage these funds in a proper manner and not be expecting the Commonwealth to provide them with extra funds. They are all a bunch of crooks and we don’t need them. What do they do for us anyway in the local council?
Ken. says
Cheap money is always good. But if the workers get too much, it could make a few of us lazy. If the employers get too much, they will treat the workers like shit. Easy money needs to be evenly distributed to all. Bank cards are all our worst enemy. Why do the Parasitic Banks charge about 22% interest. Government should cap all credit cards at 10% and the parasites would still make a killing. Interest rates for home loans will continue to go down for about 2 years before rising so don’t what ever you do lock your rates in. Did your bank ring you and talk you into fixing your interest rates a few years ago. They done this to a lot of people, not just you, as they know well in advance what will happen. Cheers, Ken.
Mike says
I can remember pre-GFC that banks would line up offering your business alll sorts of funding. In 2006 I was in London & bankers offered all sorts of dough for ventures in which my fimr was involved. Today? just try! Back in Oz the banks – including those I was talking to in London – have mounted all sorts of hurdles through which you must jump. You talk with many SMEs & they will tell you the banks aren’t that friendly anymore. So while the stockmarket may be going ahead i leaps and bounds, the SMEs who really are the bulk of more business activity in the economy are still playing it tough. Just look at the number of businesses closing. Even some of the big boys are struggling – Ford? Seeing the stockmarket growing and property markets upping asset prices is a bit like watching roses growing out of sludge. We still have a lot of problems in the marketplace due to the GFC overhang of debt, but those with unbridled enthusiasm for the next boom will surely get burned while those who can read the tea leaves well will certainly make a lot of money. Miss the mark and one will end up in the sludge. Regards Mike
ian townsend says
i keep thinking of the saying ( there,s a sucker born every minute!). The only type that can make any money out of all this are the brokers and the same people that ran off with the bags of money before 2008 and they are the speculators and the investment advisors that keep telling you that everything is going to be ok , when in fact that sinking feeling you have in the pit of your stomach tells you other wise . And sure enough and rite on time the bastard that you gave you the advice has left the company and your left holding a bag of horse shit .The amount of times i remember hearing this scenario play out time and time again with some of the baby boomers just on the verge of retiring is staggering !!!. As one pundit said , ” It,s all a ponze”.Its all musical chairs . But this time around too many people will be caught out or hung out to dry .
jim says
Bang on the money, all of you. Its a dangerous game. Fact: unless you’re at the front of the pack, in government, the head of some major corp or one of the ruling class who stole all the land in the first place, you’re pooched. The gov keeps selling all its assets, keeps going further into debt, keeps raising and finding new ways to tax the shit out of us. The banks and corps own all the countries. Slaves to the elite, that’s what are. Even many of the elite are fooled into believing their on the winning side. Everything is finite. Borrowed time. All growth is based on speculation. Interest. Future payments. None of which exist in reality. Good luck to us all. I’m a sucker, I own 3 houses and am praying to hold it together but to what end. The environment is pooched too. Were just mice on a wheel:-)
Ken. says
Jim, If you own 3 houses outright, the system must be doing something right for you, well done mate. However, if you are negative geared, you may be in deep shit. This has never been the Author’s intention as I have been following Knowledge Source for a long time. If I was negatively geared, I would sell 1 or even 2 of your houses to pay down the other 1, otherwise you have it made, so keep smiling. Cheers, Ken.
Mickey says
it is expected 2 shockwave of gfc to hit beginning of 2015! i see alot of people selling off investments to outright own it before they loose it 🙂 interest rate would stay low next 4 years why ? because banks offering 3 year fixed at 4.95 % 🙂